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January 11, 1972

Clifford V. McGLOTTEN et al., Plaintiffs,
John B. CONNALLY et al., Defendants

The opinion of the court was delivered by: BAZELON

Plaintiff, a black American allegedly denied membership in Local Lodge #142 of the Benevolent and Protective Order of Elks solely because of his race, *fn1" brings this class action to enjoin the Secretary of Treasury *fn2" from granting tax benefits to fraternal and nonprofit organizations which exclude nonwhites from membership. *fn3" Relief is sought on three separate counts: first, that various sections of the Internal Revenue Code are unconstitutional to the extent that they authorize benefits under the income, estate, and gift taxes; second, that the Internal Revenue Code does not authorize such benefits; *fn4" and third, that such benefits are a form of federal financial assistance in violation of Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq. Defendant now moves to dismiss the complaint on both jurisdictional grounds and for failing to state a claim upon which relief can be granted.

I. Jurisdiction

 A. Three-Judge Court

 We must first assess defendant's contention that 28 U.S.C. § 2282 *fn5" does not authorize a three-judge court because the claim of unconstitutionality of the statute is not substantial, *fn6" and because plaintiff's attack is not upon the statute but upon the regulations and administrative action thereunder. See Sardino v. Federal Reserve Bank of New York, 361 F.2d 106, 113-116 (2nd Cir.), cert. denied, 385 U.S. 898, 87 S. Ct. 203, 17 L. Ed. 2d 130 (1966).

  Section 2282 does not apply to suits seeking injunctions against administrative action, as distinguished from Acts of Congress. William Jameson & Co. v. Morgenthau, 307 U.S. 171, 173-174, 59 S. Ct. 804, 83 L. Ed. 1189 (1939). The Supreme Court has been less than clear in indicating how this distinction is to be determined in practice, particularly where the complaint is two-pronged, charging that the statute is unconstitutional and, in the alternative, that administrative action is beyond the authority granted by the statute. See Currie, The Three Judge Court in Constitutional Litigation, 32 U. Chi. L. Rev. 1, 37-55 (1964).

 The Second Circuit has suggested in Sardino, supra, that the three-judge court procedure is not required where

an Act of Congress confers authority on an administrator in general terms which could be read either to embrace or to exclude the challenged action, and the application of the statute is clearly constitutional in certain cases but arguably not so in the administrative scheme under attack. *fn7"

 While this interpretation of § 2282 would appear to impose a sensible limitation on the use of an admittedly cumbersome procedure, recent Supreme Court decisions foreclose that course. In both Zemel v. Rusk *fn8" and Flast v. Cohen *fn9" the Court upheld the jurisdiction of three-judge courts on facts virtually indistinguishable from those in the present case. *fn10"

 We understand these decisions to require the convening of a three-judge court -- even where the attack is on the constitutionality of the statute as applied and coupled with a claim that the action in question was not authorized by the statute -- where the constitutional claim is itself substantial. *fn11" We find that plaintiff's constitutional claims are substantial, see Part IIA infra, and that a three-judge court was properly convened.

 B. Standing

 Defendant next contends that plaintiff lacks standing to challenge the constitutionality of the statutes in question. The Supreme Court has recently clarified this troubled area, *fn12" setting forth a two-part test for standing: 1) for purposes of the case or controversy requirement of Article III it must appear "that the challenged action has caused injury in fact, economic or otherwise;" *fn13" and 2) as a matter of judicial self-restraint, the court must determine "whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question." *fn14"

 Plaintiff alleges two injuries as a result of the tax benefits in question: First, that the funds generated by such tax benefits enable segregated fraternal orders to maintain their racist membership policies; and second, that such benefits constitute an endorsement of blatantly discriminatory organizations by the Federal Government. We find both these allegations of injury sufficient to ensure that "the dispute sought to be adjudicated will be presented in an adversary context and in a form historically viewed as capable of judicial resolution." *fn15" Just as "[a] person or family may have a spiritual stake in First Amendment values sufficient to give standing to raise issues concerning the Establishment Clause and Free Exercise Clause," *fn16" so a black American has standing to challenge a system of federal support and encouragement of segregated fraternal organizations. *fn17"

 C. Jurisdiction Under the Declaratory Judgment and Tax Injunction Acts

 Defendant relies upon the provision of the Declaratory Judgment Act, 28 U.S.C. § 2201, which specifically excepts suits "with respect to Federal taxes" from its coverage. *fn18" In our view, the scope of this exception is coterminous with the breadth of the Tax Injunction Act, 26 U.S.C. § 7421 (a), *fn19" which forbids enjoining the collection or assessment of any tax. As originally passed in 1935, *fn20" the Declaratory Judgment Act did not contain the present exception for Federal taxes. The exception was added the following year *fn21" for the explicit purpose of limiting the jurisdiction of the courts to issue declaratory judgments in the same fashion as their general jurisdiction was limited by the Tax Injunction Act. *fn22" If the injunctive relief requested by plaintiff is barred by the Tax Injunction Act so too will relief be barred by the Declaratory Judgment Act. *fn23"

 In Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 82 S. Ct. 1125, 8 L. Ed. 2d 292 (1962), the Supreme Court stated that

[the] manifest purpose of § 7421 (a) is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for a refund. In this manner the United States is assured of prompt collection of its lawful revenue.

 Id. at 7, 82 S. Ct. at 1129. Thus understood, § 7421 (a) ensures that the assessment and collection of taxes follows the procedure prescribed by the Internal Revenue Code. Objections, even on constitutional grounds, are to be determined in a suit for refund. *fn24"

 Plaintiff's action has nothing to do with the collection or assessment of taxes. He does not contest the amount of his own tax, *fn25" nor does he seek to limit the amount of tax revenue collectible by the United States. The preferred course of raising his objections in a suit for refund is not available. In this situation we cannot read the statute to bar the present suit. To hold otherwise would require the kind of ritualistic construction which the Supreme Court has repeatedly rejected. Even where the particular plaintiff objects to his own taxes, the Court has recognized that the literal terms of the statute do not apply when "the central purpose of the Act is inapplicable." *fn26" In the present case, the central purpose is clearly inapplicable. It follows that neither § 7421 (a) nor the exception to the Declaratory Judgment Act prohibits this suit. *fn27"

 II. Failure to State a Claim Upon Which Relief Can Be Granted

 As noted above, plaintiff advances three separate theories in support of his right to relief. He challenges the constitutionality of the statute if, and to the extent that, it authorizes the grant of tax exempt status to nonprofit clubs and fraternal orders, and makes deductible contributions to such fraternal orders. He alternatively claims that the Internal Revenue Code does not authorize the deductibility of contributions to fraternal orders. Finally, plaintiff claims that both exemption from taxation and deductibility of contributions are federal financial assistance in violation of Title VI of the Civil Rights Act of 1964. Since a motion to dismiss for failure to state a claim tests the legal sufficiency of each count of the complaint, we must consider the counts separately.

 A. Constitutionality of Federal Tax Benefits to Segregated Organizations

 Better than one hundred years ago, this country sought to eliminate race as an operative fact in determining the quality of one's life. The decision has yet to be fully implemented. As Mr. Justice Douglas has pointedly stated: "Some badges of slavery remain today. While the institution has been outlawed, it has remained in the minds and hearts of many white men." *fn28" The minds and hearts of men may be beyond the purview of this or any other court; perhaps those who cling to infantile and ultimately self-destructive notions of their racial superiority cannot be forced to maturity. But the Fifth and Fourteenth Amendments do require that such individuals not be given solace in their delusions by the Government. Nor is this emphasis on the conduct of the Government misplaced. "Government is the social organ to which all in our society look for the promotion of liberty, justice, fair and equal treatment, and the setting of worthy norms and goals for social conduct. Therefore something is uniquely amiss in a society where the government, the authoritative oracle of community values, involves itself in racial discrimination." *fn29" Where that involvement is alleged, the courts have exercised the most careful scrutiny to ensure that the State lives up to its own promise.

 Here plaintiff challenges the constitutionality of various provisions of the Internal Revenue Code to the extent that they authorize the grant of Federal tax benefits to organizations which exclude nonwhites from membership. These provisions exempt from income taxation nonprofit clubs (§ 501 (c) (7)) and fraternal orders (§ 501 (c) (8)) and make individual contributions to such fraternal orders deductible for income, estate, and gift taxes if the contributions are used "exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to children or animals." §§ 170 (c) (4), 642 (c), 2055, 2106 (a), 2522. Plaintiff's claim thus leads us into the murky waters *fn30" of the "state action" doctrine, for we must determine whether by granting tax benefits to private organizations which discriminate on the basis of race in membership, the Federal Government has supported or encouraged private discrimination so as to have itself violated plaintiff's right to the equal protection of the laws.

 While a century ago, the phrase "state action" *fn31" may have sufficiently demarcated the extent of lawful state participation in private discrimination, that clarity has long since vanished in the wake of the greatly expanded role of government in a modern, industrial society. Whether by licensing, *fn32" contract, *fn33" or tax, *fn34" few activities are left wholly untouched by the arm of Government. The responsibilities of the Government under the Fifth and Fourteenth Amendments, however, are not diluted by the expanded scope of Government, *fn35" and our inquiry has become necessarily more detailed. "[Only] by sifting facts and weighing circumstances can the nonobvious involvement of the State in private conduct be attributed its true significance." Burton v. Wilmington Parking Authority, 365 U.S. 715, 722, 81 S. Ct. 856, 860, 6 L. Ed. 2d 45 (1961).

 1. The Deductibility of Contributions to Fraternal Orders.

 To demonstrate the unconstitutionality of the challenged deductions plaintiff must, of course, show that they in fact aid, perpetuate, or encourage racial discrimination. *fn36" He alleges, subject to proof at trial, both the substantiality of the benefits provided *fn37" and a causal relation to the discrimination practiced by the segregated organizations. *fn38" But more is required to find a violation of the Constitution. Every deduction in the tax laws provides a benefit to the class who may take advantage of it. And the withdrawal of that benefit would often act as a substantial incentive to eliminate the behavior which caused the change in status. Yet the provision of an income tax deduction for mortgage interest paid *fn39" has not been held sufficient to make the Federal Government a "joint participant" *fn40" in ...

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